Thursday, July 2, 2009

GOLD ETF Mutual Funds - Most Hassle-free Option To Invest In Gold

Gold has suddenly become a preferred investment option thanks to economic turmoil. Not surprising, as it was always considered a safe hedge against such developments.However, it need not necessarily come into your investment radar only during uncertainty. According to investment experts, gold should always be part of the portfolio of a person who wants to preserve his wealth.

Diversification is an important to tool to preserve ones wealth over a long period. When we talk to our clients we tell them fixed deposits, corporate deposits, stocks, gold... all should be part of their portfolio , says a wealth manager with a bank. We explain to them that spreading their investments across asset classes will help them withstand the bad performance of a particular investment.

For example, recently investments in gold fetched handsome returns when stocks were faring badly , he adds. However, the new crop of investors have left financial advisors a worried lot. They say most new investors have unrealistic expectations from gold. Most remember that gold had given very high returns a few months ago. They believe it would happen often, says the wealth manager.

Transcend Consulting director Kartik Jhaveri says, Investors should not focus on such sporadic returns. It is mainly because of volatility. For example, the dollars weakness, crude prices going up, uncertainties in the global economy would have a positive impact on gold prices. He says, Over a long period gold would give around 6-8 % returns. If you look at the returns in 10 years, it would just about beat inflation. Another dilemma faced by investors, point out consultants, is that they dont have a definitive idea about which is the ideal form of investing in gold. Many investors apparently would still prefer buying gold coins and bars sold by reputed banks (if not jewellery) and safe-keep them in their bank locker.

This method, according to investment experts , is the least preferred and inefficient option . This because most banks dont buy back gold and the investor must then turn to retailers to strike a good deal. Meanwhile in the retail market, often jewellers prefer exchanging the coins or bars with ornaments itself rather than pay cash to such customers. So, if you are investing in physical gold, be prepared for some hiccups when it comes to liquidating it. Jhaveri says it is better for investors to go for exchange-traded gold funds, especially if they are looking for a hassle-free investment option. These are mutual fund schemes investing in gold that you can buy and sell in a stock exchange. Since you dont own gold in the physical form, you dont have to worry about liquidating it. You can sell the units of the scheme in a stock exchange at prevailing prices. Though it may look the most convenient form of owning gold, the idea is yet to catch up with common investors, say financial consultants.

If you are a bit more adventurous, then you may consider directly owning stocks of some gold mining companies. Sure, they carry more risk, but they can also reward you, says Jhaveri. If you have even more appetite for risk, you may even consider trading in gold futures in the commodity market.

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